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A pricing assumption is made and Alice tries to explain what pricing strategy each company will pursue. She does not quickly articulate her initial hypotheses.
Alice is good at quickly breaking down the issues, here in economic terms. However, she struggles just a little to quickly, and correctly, offer a preliminary hypotheses.
Working off Kevin’s hints, Alice is able to determine why the gross margin changes and identifies a factor that can offset the decline in margins.
By examining KO’s fixed cost structure, Kevin helps Alice understand the difference in strategies for companies with different cost structures.